Prime Minister Narendra Modi’s demonetisation drive may hit the demand for cars as more and more people decide against buying expensive items.

Enquiries for used cars in south Delhi have gone down by 80%.(REUTERS)

Prime Minister Narendra Modi’s demonetisation drive may hit the demand for cars as more and more people decide against buying expensive items.

However, the drop in the sales of used cars will be steep as these are largely driven by cash. “People will hold back from selling their old vehicles,” said Rakesh Srivastava, head of sales and marketing at Hyundai Motor India.

Srivastava said the drop in sales could be as high as 50% in the short term, till cash is infused into the system.

A used car seller in south Delhi said that enquires had gone down by 80%. “Everyone is bothered about withdrawing money … no one is thinking of buying a car. The cash they had stored is useless for me as well,” said a dealership owner .

Nearly four million used cars are sold in the country every year, which is more than the number of new cars sold.

Experts, too, think there will be a big impact on cars sales, as people buy cars at the end of every year. “That won’t happen …. Also, most down payments are in cash, which is not available,” said Amit Kaushik, India head of Detroit-based consultancy firm Urban Science.

Deepesh Rathore, London-based analyst of Emerging Markets Automotive Advisors, said cash is a major mode of payment – both for old and new cars – in smaller towns and villages.

Kaushik pointed out that in some cases, people bought cars with black money. “We are dissuading people from making purchases in cash. It is difficult to handle cash, especially for luxury vehicles. In the past, we couldn’t say no to our buyers,” said Roland S Folger, managing director of Mercedes-Benz India.

Maruti Suzuki India, the country’s largest carmaker, said the impact would be negligible. “About 75% of our sales are through loans … it is the same with used cars,” said a company spokesperson.